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How to Identify Threats to Your Business and Career

identify threats to your business and career for BIGG SuccessMillennials don’t wear watches. A friend of ours recently said he doesn’t either. And he’s a boomer.

They don’t wear watches because they don’t need them. They use their smartphones.

The trend in watches may not be important to you. But it serves as a great example.

If you’re an entrepreneur, take note. But even if you aren’t, you can learn from this example.

Listen to this post! Click a player to hear George & Mary-Lynn on The BIGG Success Show Podcast. (Duration 4:20)


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The mistake we make too often

When we think about competition, we tend to think too directly. We only think about other businesses in our industry.

We go “head to head.” We “duke it out.”

It makes for great drama. But all the while, we may have a larger problem:

As strange as it sounds, your greatest competition may not come from your competitors. It may show up in the form of substitutes – smartphones replacing watches.

Sure, you should think about your competition. You should understand what they’re good at and what they’re not.

But as you consider the future of your business or your career, think long and hard about the threats to your livelihood.

3 important questions to ask

You need to think about more than just who your customer might use instead of you. You also need to ask:

  • What might a customer use instead of your product or service?

    In this example, a customer could replace their watch with their smartphone.

  • Why might it be different this time around?

    It’s not like smartphones are the first time we’ve had access to a clock other than a watch.

    Our cell phones had clocks on them. But they didn’t make this impact.

    So why is it different this time around? Because our smartphones are command central for most of us.

    We check our e-mail. We surf. We text. We take pictures. We play games. The phone is the least important part!

    If they’re not in our hand, they’re on the desk or table in front of us. They are ever present. We connect with the world through them.

    So why have a watch when you can just refer to the device you refer to for everything else? It’s just as easy (if not easier) to check the time on your smarthphone.

  • How might this new use affect your business or career?

    So smartphones may turn out to be a destructive technology to watch manufacturers and a disruptive technology to jewelry stores.

    If you’re in one of those businesses – as an owner or an employee – you would have to think about the effect it will have in the coming years.

    But don’t stop there. Figure out how you will respond now.

The key is to keep your eyes and ears open. Get outside your industry. Watch the trends.

Most of the things you see will have little or no impact on your business or your career. But once you in a while, you may something that will.

We’ve talked about this in a defensive way. But as you look and listen, you may discover an opportunity that leads to BIGG success!

Direct link to The Bigg Success Show audio file | podcast:
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Should I Stick with Stocks?

mattress Last time, we talked about a new trend – people stuffing their mattresses the 21st century way. Baby boomers seem to be the main group behind this trend. They are buying treasury bills and gold coins as safe harbors from the volatile stock market.

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It’s understandable that baby boomers are looking for alternatives because many of them are so close to retirement.

But what if you’re not about to retire … should you stick with stocks?
We’ve heard a lot about how the recent decline in stock prices has wiped out all of the last ten years worth of gains. So it’s a really good question. We decided to do some analysis of our own.

Before we start, allow us to make one disclaimer: We’re going to provide an example to help you understand how the market works. Your decisions about your portfolio should be based on your specific situation. We recommend that you talk with a certified financial advisor to help you with that.

Stocks and Certificates of Deposit

To keep it simple, we looked at just two assets – stocks, represented by the S&P 500 (Source: Yahoo! Finance) and risk-free investments, represented by one-month CDs (Source: Federal Reserve) in FDIC-insured institutions.

There may be better assets to invest in (e.g. a broader stock market index), but we still felt that these represented risky assets and risk-free assets relatively well. We were curious about what has happened in the past, looking at various scenarios, with these two assets. This is a good place to insert a couple of caveats:

  • We are looking at historical numbers. We’re not psychic nor do we possess any other ability to project the future.
  • We used nominal pre-tax rates of return, so inflation and taxes have not been factored in to the returns we’ll discuss.

The last ten years
When we look at the last ten years (going back from December 31, 2008), we see that the stock market underperformed its historical average through almost the entire decade.

The best mix of these two assets for the last ten years would have been no mix at all. Investing 100 percent in CDs provided the best return. Even then, the return was not that great: 3.62% per year by our calculations. The worst return, as you might guess, was being 100 percent invested in stocks over the last ten years. They lost about one percent per year.

What about prior ten-year periods?
One ten-year period isn’t all that instructive. So we went back ten more years (January 1, 1989 to December 31, 1998) and looked at those returns. The highest returns in that period came from a portfolio of 100% stocks, which returned 17.28% annually.

So stocks are one for two. Let’s break the tie and go back another ten years. Can you hear the disco music playing?

A portfolio that was fully invested in stocks delivered the best return in that period (January 1, 1979 to December 31, 1988) as well. They earned a return of 14.36% per year.

Is ten years long enough?
Financial advisors have said for years that stocks perform best over longer periods of time. They used to tell us that we should have at least five years before we needed the money or we shouldn’t invest in stocks. Now we’re hearing more and more that ten years is the magic number.

But here’s the thing … we really shouldn’t even count on that as we’ve learned the last ten years.

How long until you retire?
Let’s think about this … if you’re 40-years old, you might have twenty years before you want to retire. At 30, let’s say you have 30 years. How have the returns looked over that period?

Looking back twenty years, even with the most recent decade, our best bet would have been to be fully invested in stocks. Our return would have been 8.14% annually. It’s ditto for the most recent thirty years. An all-stock portfolio returned 10.21% per annum, about its historical average.

So, our research shows that history shows that you should stick with stocks over the long term. But is there a way to lower your risk without sacrificing returns unjustly?

The price of a higher return
There is a price to pay to get a higher return. That price is more volatility and volatility equals risk. Riskier investments should pay more to compensate you for the risk you’re taking. Stocks are riskier than CDs; therefore, they should pay more.

The price of less risk
We just said that riskier investments generally offer higher returns as compensation for the risk. So why not just invest in CDs and other risk-free assets? Because they may not return enough to get you where you need to go. There is a better answer.

Diversification smoothes it out
When you diversify your assets – investing part of your portfolio in risky assets like stocks and a portion in risk-free assets like CDs, you smooth out the volatility, relative to just investing in stocks, while still getting a higher return than if you invested all your money in just CDs.

Example: A 50/50 Mix

As we discussed earlier, had you just invested in stocks over the last thirty years, you would have made about 10 percent per year on your investment. However, you would have lost about one percent a year in the most recent decade.

What if you can’t stomach losses like that?

Obviously, any money invested in stocks is at risk. However, if we had invested 50 percent in stocks and 50 percent in CDs over the last thirty years:

  • We wouldn’t have lost money over the last decade. In fact, we would have made 1.31% per year.
  • The thirty-year return on our portfolio would have been 8.32% a year. While it’s less than the 10 percent we could have earned by just investing in stocks, it’s not that much less. Looks pretty good right now, doesn’t it?

We want to emphasize again that we’re not saying a 50/50 mix is right for you. Consult your financial planner. We just picked 50/50 to see what would have happened with an even mix of these two assets.

Long on stocks
As you can see from the returns we quoted earlier, the experts are right – stocks are good long term investments. If you need the money ten years from now, you need to be careful. If you’re a 30- or 40-year old funding your retirement, a good basket of stocks as part of a well-diversified portfolio is a great place to stick your money.

Short on dollars
Going back to where we started, more people are investing very conservatively in treasuries right now. The problem is, if you invest too conservatively, you have to make a choice. Will you be short on dollars now or at retirement?

If you choose to fully fund your retirement, it means you’ll have to invest more now to reach your goal, which means you’ll have to sacrifice more now than is probably necessary.

We still don’t know if we’ve hit bottom on the stock market. But here’s what we do know – most market timers get it wrong most of the time. That’s why we won’t try!

If you have time until you need the money, invest in a well-diversified portfolio. You won’t be quite as happy in the good times, but you won’t be nearly as upset during the bad. 

We really appreciate you spending some time with us today. Join us next time when we interview John Jantsch, The Duct Tape Marketer, about how to make customers stick without busting the bank. Until then, here’s to your bigg success!

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Direct link to The Bigg Success Show audio file:
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Related posts

Mania in the Market and Rising Above the Crowd

When It Comes to Investing, Time is on Your Side

Squirrels, Nuts and Business Cycles

(Image in today's post by woodsy)

Where Should I Stuff My Money?

mattress In days gone by, mattress stuffers hid all their money somewhere in or around their home – in the backyard, in cans, between the pages of books, in the walls, in a cookie jar, and even under a removable section of floorboards.

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A recent article in the Wall Street Journal talked about the new generation of mattress stuffers. People increasingly don’t trust anyone or anything, a response to falling home prices, crashing stock prices, bank troubles, and government ineptitude.

It’s something we don’t talk about much, but an increasing number of people are taking matters into their own hands to prepare for the next crash. Needless to say, these people aren’t optimists!

They’re pulling their money out of the stock market and stuffing their mattresses the 21st century way.

Stuffing money in treasuries

Instead of actually stuffing cash into their mattresses, they’re buying treasury bills, the safest of all investments. Most financial experts refer to these and other treasury securities as risk-free investments.

Stuffing money in gold

New generation mattress stuffers are also buying gold coins in record amounts. You may have noticed an increase in the number of ads on TV about gold. This flight to safety has been evident after just about every financial crisis, as people return to the gold standard.

Who is primarily driving this trend?

Many baby boomers have taken a huge hit to their portfolios just as they near retirement. They are the driving force behind this trend because they don’t have time to recover from the recent stock market losses before they retire.

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What if you’re not ready to retire?

If you’re not close to retiring, it’s crucial to think clearly about this new mattress stuffing strategy. There are definitely some pros and cons.

Pro: We should own a well-diversified portfolio.
Experts tell us to diversify, diversify, diversify. Typically, the more diversified we are, the better. A diversified portfolio might include stocks, bonds including treasuries, real estate, and perhaps some commodities like gold. Diversification generally delivers the best return given the overall risk.

Pro: Treasuries should be part of most diversified portfolios.
Until recently, a lot of people found treasuries kind of boring because they didn’t deliver enough return. That’s because they aren’t considered risky at all, which is also why they are an essential component of a fully diversified portfolio.

Pro: Gold may also be a wise investment as a small part of a diversified portfolio.
Gold and other tangible assets usually perform best in times of high inflation. So gold can serve as “insurance” against such times. The reason that people often flock to gold in times like these is that, historically, it has been an acceptable way to pay for things.

Con: If you put all of your assets in treasuries, your returns will be much lower.
This lower return is not unjustified. After all, you’re investing in an asset that’s considered to be risk-free. The problem with this strategy is that you may not end up with as much money as you need for your retirement.

Con: It’s dangerous to put a significant percentage of your assets into gold coins.
If experts recommend gold at all (and many more are these days) as part of your portfolio, most suggest keeping it to around five percent of your total assets. Unlike treasuries, gold carries risk – its price goes up and down. One other tidbit – gold has underperformed most other assets historically.

Con: There’s no cash flow with gold.
Treasuries pay interest at regular intervals. You don’t earn any money on a gold bar or a gold coin. The only way to make money by holding gold is to sell it at a price higher than what you paid for it.

Next time, we’ll take this discussion a step further. We’ll apply some real world numbers to help you with your diversification decisions.

We are so thankful that you took the time to read our post today. Until next time, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00306-011209.mp3

Related posts

Mania in the Market and Rising Above the Crowd

When It Comes to Investing, Time is on Your Side

Squirrels, Nuts and Business Cycles

(Image in today's post by jillmbatt)

Are Twenty Somethings Getting A Bad Rap?

Three managers from three different generations, told us in three separate conversations, about their challenges with twenty somethings. Do young people today want the rewards without the effort?

Here are a few of our many thoughts on this question. First, to those who are a little past your twenties (or still holding on strong to 29 … again):

  • Be careful not to over-generalize.
  • When a lot of people think of baby boomers, they think of hippies. Gen Xers are slackers. Yet these attributes only apply to a small portion of the total population of each of these generations.

    The same is true of twenty somethings. Sure, some think they’re entitled to the best of everything. But many share the same work ethic, the same desire to prove themselves, as their predecessors.

  • Show them how they make a difference.
  • Employees of all generations consistently want two things from work, in addition to making a decent living. First, people want to be recognized for a job well done. Second, people want to feel like they’re part of something bigger.

    A young woman, with tears welling up in her eyes, told us about her first job, as a summer intern for the Chicago Housing Authority. Here’s her story:

    “On my first day of work, I walked into the office and was greeted by the receptionist. She immediately called my supervisor. My supervisor took me back to her office.

    She said, ‘I’m so glad you’re here. Our work is very important. We find homes for people. And I’m so happy that you’re here because we have more people wanting homes than we can handle. With your help, we’ll find homes for more people.’

    I couldn’t wait to get to work every day. Because I knew I was helping people.”

    Go the extra mile – show your people, of all ages, how your organization makes a difference. If you do, you’ll have a group of motivated employees.

Now, for those of you in your twenties:

  • Turn this negative into your positive.
  • This perception is out there … and it’s going to stick, at least for awhile. Use it to your advantage. If you go the extra mile, you’ll stand out from the crowd. Successful people do what unsuccessful people don’t.

    Little things make big differences. For example, get to work fifteen minutes earlier tomorrow. Stay fifteen minutes later. You’ll get noticed! Over time, you’ll be surprised at the difference it makes.

  • Prepare yourself now for the opportunity to come.
  • Opportunity will present itself. The only question is whether or not you’ll be ready. If you can’t or won’t do little things extremely well, you’re won’t get the opportunity to work on big things.

    Napoleon Hill, in his great book, Think and Grow Rich, tells the story of Edwin Barnes. Barnes went to work for Thomas Edison, with the goal of becoming Edison’s partner. Edison invented a product that his sales people said wouldn’t sell. Barnes saw his opportunity – he took the project no one else wanted and became Edison’s partner in the process!

Our quote today is by the great quarterback, Roger Staubach.

“There are no traffic jams along the extra mile.”

Give all you’ve got and you’ll get more than you can imagine.

Tomorrow, we’ll discuss the communication debate – e-mail, phone, or face-to-face – what contact method should you use? Until then, here’s to your big success!